Saturday, February 8, 2014

Barron's Boasting Twitter can go how low?

After the jobs # on Friday, $TWTR was trading at $50.25 - longs Friday AM were handsomely profitable and my most profitable name traded on Friday closing near highs at $54.5 I'm currently flat and looking forward to the reaction Monday if any to the negative Barron's piece below. One thing on Barron's, when their wrong you rarely here from them, as was the case with the $FB Facebook story calling for targets in the teens. Here they are getting a bit egotistical possibly - we will see the outcome in timeThanks for checking....Tim_K

A Return Visit To Earlier Stories: Why Twitter Could Fall
Further Lower
Feb 8 at 00:09

By Andrew Bary

(FROM BARRON'S 2/10/14)
Aw, tweet! Shares of Twitter fell 11 points, or 17%, last week, to
$54.35, leaving them sharply below their December peak of $74.73, after the
company reported slowing growth in worldwide users in the fourth quarter,
raising doubts about whether Twitter can go mainstream. Worldwide monthly
average users totaled 241 million, up 4% from the prior quarter and below Street
estimates.
That spooked investors because Twitter (ticker: TWTR) needs enormous
growth to justify its huge valuation. The stock trades at 30 times projected
2014 sales, based on its enterprise value (market value less net cash) of $36
billion. That's double the price/sales ratio of Facebook and probably the
highest for any large company in the stock market. Twitter shares could be heading even lower, perhaps into the $30s.
Barron's was bullish on Twitter prior to last November's initial public
offering, but we warned that investors shouldn't pay more than $30 for the
stock. After Twitter surged into the $60s, we wrote that its shares had reached
crazy levels ("Twitter: Priciest Stock Since the Dot-Com Bubble?" Dec. 30,
2013).

One troubling aspect of the profit report that received scant attention is
the company's massive stock grants to employees that result in significantly
understated expenses and overstated earnings.
Twitter issued guidance for 2014 calling for adjusted earnings before
interest, taxes, depreciation, and amortization of about $165 million. But
that excludes a projected $625 million of stock-based-compensation expense.
Standard accounting requires that stock compensation be recorded as an expense,
which Twitter does. But the company encourages investors to exclude the stock
compensation because it's noncash. In virtually every industry other than tech,
stock compensation is treated as the expense it actually is.
Twitter's guidance for 2014 stock compensation nearly doubled since it
IPO, reflecting large late-year grants. Next year, about 40% of Twitter employee
compensation could consist of stock. The upshot: After booking this compensation
as an expense, Twitter likely will have negative earnings this year and in 2015.
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